FPIs bullish on banking sector again, trend likely to continue

While being net buyers of cash shares worth ₹ 26,505 crore so far this month, they have also purchased Bank Nifty futures contracts worth a net ₹2,361.29 crore over three days through 8 December, coinciding with the monetary policy committee’s bi-monthly meeting. Against this, they purchased Nifty futures of just ₹ 568 crore.

These purchases were effected after they remained net short on Bank Nifty and Nifty futures since 2 November. While the share of allocations to bank stocks this month can’t be ascertained, the jump in the Bank Nifty by 5.5% against a 3.64% rise in Nifty from 1-8 December reflects their tilt to financials over other large-caps so far this month.

Analysts believe this trend could continue and lead to the outperformance of financials to other sectors.

“FPI buying of futures contracts along with purchases of banking stocks from the cash market segment will drive the Bank Nifty toward the upper end of a 46500-48000 range in the near term,” said Chandan Taparia, research head of derivatives and technicals at Motilal Oswal Financial Services.

The purchase of underlying shares as well as futures reflects optimism by FPIs who usually sell futures when they turn cautious.

Most analysts feel the victory of Bharatiya Janata Party in the three states of Madhya Pradesh, Rajasthan and Chhattisgarh, with PM Narendra Modi at the vanguard of campaigning, bodes well for the ruling dispensation at next year’s Lok Sabha polls as this assures business of policy stability and continuity.

“The recent win at the assembly polls has revived FPI interest in India again,” said Jay Prakash Gupta, founder, Moneylicious Securities (Dhan). “Businesses prefer policy level stability and continuity and this win means more thrust on infra and need for working capital , which bodes well for bank balance sheets. The banking sector is likely to outperform, going forward.”

Taparia expects stocks like HDFC Bank, Kotak Mahindra Bank and ICICI to be among the beneficiaries of FPI buying.

FPIs sold over ₹39000 crore worth of Indian shares between September and October and raised bearish bets on Nifty and Bank Nifty futures to a cumulative level of 175,698 contracts on 2 November, the highest after the record bearish positions of 196,378 contracts.

They turned marginal buyers of cash in November of around ₹9001 crore of shares while covering their bearish futures bets all the way to 5 December . On 6 December, they turned cumulative buyers of index futures (Nifty and Bank Nifty) and as of 8 December were long 36,052 contracts.